No Love Lost: Despite Negative Impact Of Flipkart Losses, Walmart Remains Bullish

After the global retailer Walmart acquired Indian ecommerce company Flipkart in a $16 Bn deal last year, the questions had come up on the future of Flipkart and how well would association works. The results of the first official inclusion of Flipkart in Walmart’s financial performance have come in. But the questions continue to remain the same.

The numbers show that International operating income for the first quarter of FY2019 of Walmart was down 38% in constant currency terms and 42% on a reported basis, in which Flipkart played a big part.

“A large part of the decline was due to dilution from Flipkart, which was expected, partially offset by the deconsolidation of Brazil,” Walmart CFO Brett Biggs said in the management commentary statement.

In the February-April quarter, as a consolidated entity, Walmart’s total revenues grew about 1% to $123.93 Bn at a cost of $118.98 Bn, which also grew 1.2%. Interestingly, the company reported profits of $837 Mn for the year, a 145% growth against losses of $1.84 Bn in the Q1 2018.

The company’s international sales fell 4.9%. The gross profit rate declined 172 basis points on a reported basis, primarily due to Flipkart’s inclusion in this year’s results, it said in the statement. However, from Walmart there is no love lost, not yet.

Walmart CEO Doug McMillon said, “I continue to be excited about the opportunity with Flipkart and PhonePe. I’m impressed with the team and their ability to innovate for customers with speed.”

Here’s how Flipkart has impacted Walmart’s performance for the year:

• Net interest expense increased 28% primarily due to bond issued related to the Flipkart transaction
• The level of share repurchases increased significantly in Q1 on a Y-o-Y basis after last year’s suspension of buybacks in anticipation of the Flipkart announcement
•  The deconsolidation of Walmart Brazil was also a sales headwind partially offset by the inclusion of Flipkart sales
• The full year earnings dilution related to Flipkart is still in line with expectations

During his visit to India last month, the Walmart CEO said that the company continues to be committed to the Indian market given the huge opportunity that the country presents. McMillon lauded the efforts of Flipkart in creating a brand that has brought online shopping to millions of new customers in India.

A large part of McMillon’s time was spent in closed-door meetings with Flipkart’s management to understand the competitive landscape, especially with regard to Amazon. Kalyan Krishnamurthy, CEO, Flipkart had then said Walmart’s long-term, strategic partnership with Flipkart was immensely valued by everyone.

In the face of expectation of dominance in the competitive market of Indian ecommerce, which is a $1Tn opportunity, Walmart and Flipkart relationship has another big fence to cross after Reliance’s entry.

Note: We at Inc42 take our ethics very seriously. More information about it can be found here.